Why is a high rate of inflation bad for the economy?
When the average price of all goods and services an economy provides, rises over a period of time it’s called inflation. Inflation and an economy mesh together, and a change in one will impact the other. Inflation negatively affects the major components of any economy.Interest RatesHigh rates of inflation compel lending institutions to raise interest rates, which discourages borrowing. When borrowing slows, so does business expansion and consumer spending, which negatively affect economic growth.Devalues MoneyAs the cost of living increases and a dollar purchases less, buying power decreases. When buying power decreases spending slows, especially for big ticket items. This can lead to economic stagnation.UnemploymentHigh inflation results in consumers spending less, which may lead to business failure. When a business fails, many of its employees become unemployed, and another job may be hard to find. Also, when spending slows, businesses are often unable to give employees raises. When
